Karachi, In its recent assessment, VIS Credit Rating Company Limited has reaffirmed United Bank Limited's (UBL) entity ratings at 'AAA/A-1+' for medium to long-term and short-term obligations, respectively, citing robust credit quality and a solid market stance.
According to VIS Credit Rating Company Limited, the reaffirmation reflects UBL's status as a Domestic Systemically Important Bank (D-SIB) with a significant market presence. Over the past year, UBL has seen its asset base and deposits grow faster than the industry average, enhancing its market share to 8.4%. Despite a cautious approach in lending that saw a reduction in gross advances, UBL's strategic focus on treasury activities and corporate exposure has bolstered its financial standing.
The bank's investments, predominantly in federal government securities, increased significantly by December 2023 and continued to rise into March 2024, with a significant portion in floating rate Pakistan Investment Bonds (PIBs). This strategy has effectively minimized the risk of market-to-market losses due to the conservative duration of the investment portfolio, which remains below one year.
However, challenges persist with Non-Performing Loans (NPLs) seeing an uptick, primarily influenced by currency devaluation effects on international exposures. The implementation of IFRS-9 in 2024 has necessitated increased provisions for Expected Credit Losses, enhancing overall provisioning coverage and mitigating potential asset loss risks.
On the liquidity front, UBL's ratios have stayed well above regulatory requirements, supported by a growing deposit base that has seen a rise in both saving and current accounts. The Capital Adequacy Ratio (CAR) demonstrated resilience, recovering to 17.5% by March 2024 from 16.6% in December 2023, with tier-1 capital accounting for 75.3% of total eligible capital.
Profitability also improved in 2023, driven by higher net markup income, despite a decline in non-markup income and increased administrative expenses. The bank's efficiency ratio improved, and provision reversals during the year supported pre-tax profits. The outlook for profitability remains positive, supported by potential expansions in the spread, growth in non-interest income, and anticipated gains from the investment portfolio.